Hydroxyurea (HU) has been shown to augment the production of fetal hemoglobin (HbF) and for this reason is being used in the treatment of sickle cell anemia.It has been assumed that hydroxyurea (HU) promote HbF production indirectly by perturbing the maturation of erythroid precursors. However, the molecular mechanism(s) involved in how HU regulates gamma-globin expression remains unclear. Using a two-phase liquid erythroid culture system in conjunction with mRNA differential display, we reported the cloning of a HU-inducible small GTP-binding protein, designated SAR-e. SAR-e is localized to chromosome 10 and is expressed in most tissues with high level of expression in thyroid, spinal cord and adrenal gland and low level in adult bone marrow. SAR-e tagged with a GFP fusion protein at the 3' end co-expressed with anti-calreticulin in the ER complex in K562. We stably transfected the SAR-e gene into K562 cells and found a 2.4 fold induction of g-globin gene expression determined by Northern Blot. Enforced expression of SAR-e leads to a striking macrocytosis and a more immature appearance of the erythroid cells, with a doubling time of 30 hours compared with 18 hours for wild-type K562 cells. By flow cytometric cell cycle analysis, the percentage of cells in G2/M phase was decreased from 26% (wild-type) to 6% in transfected K562 cells. This inhibition of cell growth and differentiation, apoptosis and accumulation of cells in the S-phase are consistent with the known effects of HU on erythroid cells. Curiously, the expression of SAR-e was also increased in K562 cells treated with 5-azacytidine, butyrate and hemin, raising the possibility that its expression is a common factor linking red cell size and HbF induction. Western blots showed phosphorylated extracellular signal-regulated kinases (ERK) were decreased 79% in stably tranfected cells compared to vector-only cells. GATA-1 protein was down regulated and GATA-2 was up regulated by SAR-e. Our data supports a novel role for the small GTP-binding protein distinct for its known protein trafficking function, involving both cell cycle control and gene expression regulation in erythroid cells. Further elucidation of the involved pathways utilizing siRNA and specific protein trafficking inhibitors is currently underway.